13th July 2021
In the Queens Speech in May 2021, key changes to the Charities Bill were announced based on the 2017 Law Commission review of technical issues relevant to Charity Law. It has been a long time coming, but on 22 March 2021 the Government published its responses to the Law Commission’s report and has accepted the majority of the recommendations. For those charities that hold permanent endowment funds, there are some key changes to note.
A permanent endowment is money or property that was originally set up as a restriction on the basis that the capital was to be held by a charity indefinitely. Permanent endowment usually comprises land, buildings, cash or investments. For example, a charity could spend the income generated from investments, but they could not spend the capital held without prior consent from the Charity Commission.
Under the proposed Charities Bill, the definition of permanent endowment is to be reformulated to capture any fund subject to restrictions on capital expenditure. This refined definition ensures the definition of endowment funds will not apply to special trusts, where funds are held subject to a restriction that it can only be expended on a specific purpose, or a fund subject to a general restriction that only a certain percentage of it can be spent each year.
There will also be an extension to the power currently conferred in the Charities Act sections 281 and 282, allowing unincorporated charities to:
- Release permanent endowment and spend the capital (particularly where the fund is so small that the costs of administering the fund is disproportionate to the fund value)
- Extending this power to corporate charities and CIO’s (charitable incorporated organisation).
The Government has also accepted that charities should have a power to borrow from the charity’s permanent endowment. The power would allow the charity to borrow up to 25% of the permanent endowment subject to a requirement that they recoup the expenditure within 20 years. This power is intended for ‘investment’ permanent endowment and it is not intended for functional permanent endowment.
It is hoped that these changes, along with others presented in the Queens speech, will help to ease previous pressures on the day to day running of charities. The Charities Bill still needs to go through parliament to become legal, therefore charities may want to consider waiting for the new rules to be approved formally before making changes such as releasing permanent endowment funds.